Gold bulls retain control near record highs amid Fed rate cut bets

Gold (XAU/USD) continues scaling new record highs through the first half of the European session on Wednesday and climbs to the $4,040 area in the last hour. The growing acceptance of further interest rate cuts by the US Federal Reserve (Fed) has been a key factor driving flows towards the non-yielding yellow metal. Apart from this, mounting concerns that a prolonged US government shutdown could affect the economic performance turned out to be another factor underpinning the safe-haven bullion amid a slight deterioration in the global risk sentiment.

Meanwhile, the US Dollar (USD) advanced to its highest level since late August, albeit it does little to dent the strong bullish tone surrounding the commodity. Moreover, bullish traders largely shrug off extremely overbought conditions on short-term charts, suggesting that the path of least resistance for the Gold price remains to the upside. Traders now look forward to the release of FOMC Minutes, due later today. This, along with Fed Chair Jerome Powell’s appearance on Thursday, could offer rate cut cues and provide a fresh impetus to the precious metal.

Daily Digest Market Movers: Gold benefits from Fed rate cut bets amid economic uncertainties

• The US government shutdown enters its second week amid few signs of progress toward a deal as Republicans and Democrats remain committed to their positions. The government funding impasse adds a layer of uncertainty and could affect the US economic performance in the face of uncertainties over global trade.
• The start of the Federal Reserve’s monetary easing cycle in September, along with bets for more rate cuts, has also been a boon for the non-yielding yellow metal. In fact, traders are now pricing in a greater chance that the US central bank will lower borrowing costs by 25 basis points each in October and December.
• According to the World Gold Council trade association, a record $64bn has been invested so far this year in bullion-backed Exchange Traded Funds (ETF), which also saw their biggest monthly inflow in more than three years in September. This points to extra urgency as investors seek protection from potential market shocks.
• The relentless rally is not deterring central banks around the world from stacking up gold to diversify their foreign exchange reserves away from US debt. In fact, the latest data revealed that global central banks made net additions of 15 tonnes to their Gold reserves in August, led by the National Bank of Kazakhstan.
• The US Dollar climbs to its highest level since August 25 amid a broadly weaker Japanese Yen and the Euro, which continue to be weighed down by domestic political uncertainties. A stronger USD, however, does little to dent the strong bullish sentiment surrounding the commodity or hinder the ongoing momentum.
• The market focus now shifts to the release of the FOMC meeting Minutes, due later today. Apart from this, Fed Chair Jerome Powell’s appearance on Thursday would be looked upon for more cues about the interest rate cut path. This, in turn, will drive the USD and provide a fresh impetus to the XAU/USD pair.

Gold uptrend seems uninterrupted as an ascending channel breakout remains in play

Wednesday’s sustained move beyond the $4,000 mark confirms a fresh breakout through an ascending channel extending from mid-September. Moreover, the Gold price, so far, has defied overbought conditions on short-term charts. This, in turn, backs the case for an extension of the recent well-established uptrend witnessed over the past two months or so.

Meanwhile, any corrective pullback below the $4,000 round figure might now find decent support and attract fresh buyers near the $3,975 horizontal zone. A convincing break below, however, could trigger some long-unwinding and drag the Gold price to the next relevant support near the $3,948-3,947 region. The subsequent fall might expose the ascending channel support near the $3,900 mark.

(This story was corrected on October 8 at 07:06 GMT to say, in the title that Gold seems unaffected by a firmer USD.)